There is a lot of uncertainty around whether the timing is right to retire and that can often lead to increased stress and anxiety. When determining the amount of retirement income needed, you want to consider your financial circumstances, living expenses, and goals that help to define your roadmap. Special attention should be given to the changes in your lifestyle during your “Go-Go”, “Slow-Go”, and “No-Go” years.
Most retirees utilize a combination of Social Security retirement benefits and investment savings as their sources of income, although a small number may also have the benefit of a pension. Social Security retirement benefits can be confusing as to the appropriate age to begin taking them (the earliest is age 62). Many people don’t consider that their benefits can be reduced by as much as 30% if taken prior to their full retirement age, nor that they could earn an increased amount of up to 24% if they delay their benefits.
Investment income is another area that can be difficult to navigate when entering retirement, particularly because the market is unpredictable. Many do not consider an acceptable investment return to achieve their income needs and oftentimes take on unnecessary risk. One helpful strategy is to ‘stress-test’ your investment plan that can help you make more informed choices. A fee-only, fiduciary financial planner can assist by running various simulations based on different scenarios that could impact your retirement savings. This includes potential market downturns, increased healthcare expenses, or other unforeseen events.
Your income will tend to fluctuate during the various stages of retirement, which is something you want to review each year. During your early retirement years, it is particularly important to ensure that you aren’t surprised from a taxation standpoint. For example, if you exceed certain income thresholds, you will trigger something called Income Related Monthly Adjustment Amount (IRMAA), which is added to your Medicare Part B and Medicare Part D premiums. Another consideration in the early years is converting traditional IRAs to a Roth IRA prior to taking required minimum distributions (RMD).
You’ll also want to have a strategy for investment account withdrawals, for which there are no hard and fast rules. This is to help meet your income needs, while minimizing taxes and continuing to make your remaining investments work for you.
